Question

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.4%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 14% 34% Bond fund (B) 5% 28% The correlation between the fund returns is 0.0214. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds

Answer 1

Answer:

Explanation:

Expected Return stock fund ($E_{rs$) = 14% = 0.14,  Expected Return bond fund ($E_{rb$) = 5% = 0.05, Standard Deviation  stock fund ($\sigma_s$) = 34% = 0.34, Standard Deviation  bond fund ($\sigma_b$) = 28% = 0.28, correlation (ρ) between the fund returns is 0.0214